本田技研 (HMC) 2014 Q3 法說會逐字稿

Welcome to the Honda financial results audio presentation.

On January 31, 2014, Honda Motor Company announced its financial results for the fiscal third quarter, which ended on December 31, 2013.

Through this audio presentation, we would like to review the financial results, and highlight the major factors which influenced Honda's business operations during the period.

The presentation material, which will serve as the basis for today's program, is available on Honda's investor relations website at http://world.honda.com/investors.

For those of you who have not yet downloaded the material, please do so now, as we will start immediately, following a forward-looking statement.

Forward-looking statement.

This audio presentation contains forward- looking statements, as defined in section 27A of the Securities Act of 1933, as amended; and section 21E of the Securities Exchange Act of 1934, as amended.

Such statements are based on management's assumptions and beliefs, taking into account information which is currently available.

Therefore, please be advised that Honda's actual results could differ materially from those described in these forward-looking statements, as a result of numerous factors, including general economic conditions in Honda's principal markets; and foreign exchange rates between the Japanese yen and the US dollar, the euro, and other major currencies; as well as other factors detailed from time to time.

The various factors for increases and decreases in income have been classified in accordance with the method that Honda considers reasonable.

Financial summary.

We would now like to review the financial summary for the fiscal third quarter, which ended on December 31.

Please refer to slide 3.

Operating income for the third quarter was JPY228.5 billion, a 73.2% increase compared to the same period last year.

A number of factors contributed to this boost in earnings, including higher automobile sales in Japan, North America and Asia; as well as a rise in motorcycle sales in Asia, due largely to the positive impact of new model introductions in these respective business areas, cost down effects, and positive currency effects, due to a weaker yen.

Please turn to slide 4. With respect to Honda Group unit sales, motorcycle operations realized higher sales, mainly due to the popularity of new model introductions in India, and the introduction of models equipped with fuel injection in Indonesia; resulting in a total of 4.251 million units, or an 11.4% increase compared to the same period last year.

Within automobile operations, successful new model introductions, as well as the launch of fully remodeled vehicles in Japan, North America and Asia, led to unit sales of 1.082 million units; an increase of 9.7%.

In power product operations, a decline in pump sales in the Middle and Near East resulted in sales of 1.162 million units; a decrease of 2.8%.

Consolidated unit sales for the respective business areas are as shown.

Please turn to slide 5, financial highlights for the third quarter.

Net sales and other operating revenue totaled JPY3,020 billion; a 24.5% increase.

This was due to a rise in automobile and motorcycle net sales, the positive impact of foreign exchange fluctuations, as well as other factors.

Operating income rose to JPY228.5 billion; a 73.2% increase, mostly due to a rise in income associated with changes in sales volume and model mix, and cost down effects, as well as the positive impact of a weaker yen, which more than offset a rise in SG&A and depreciation costs.

The operating margin for the quarter was 7.6%.

Income before income taxes totaled JPY216.6 billion.

Equity and income of affiliates amounted to JPY31.6 billion.

Net income attributable to Honda Motor was JPY160.7 billion.

Earnings per share totaled JPY89.18.

ForEx for the quarter was JPY100 to $1, JPY19 lower than a year earlier; and JPY139 to EUR1, JPY33 lower compared to the same period last year.

Please turn to slide 6, financial highlights.

Honda's Group unit sales for the first three quarters of the fiscal year are as follows.

Motorcycle operations recorded sales of 12.521 million units; automobile operations recorded sales of 3.128 million units; power product operations recorded sales of 4.046 million units.

Financial highlights for the first three quarters are as follows.

Net sales and other operating revenue totaled JPY8,745 billion; a 22.6% increase.

Operating income rose to JPY584.9 billion.

Income before income taxes totaled JPY554.2 billion.

Equity and income of affiliates amounted to JPY95.0 billion.

Net income attributable to Honda Motor was JPY403.5 billion.

Earnings per share totaled JPY223.94.

Please turn to slide 7, financial forecast for fiscal 2014.

Our financial forecast for the current fiscal year incorporates the following assumptions; a weaker yen; a decline in motorcycle and automobile unit sales in emerging markets due to unfavorable market conditions; and a decrease in income from other income and expenses.

As a result, the financial forecast for income before income taxes has been revised down by JPY10 billion.

The forecast for equity and income of affiliates has been revised up by JPY10 billion.

Net sales and other operating revenue, JPY12,100 billion; operating income, JPY780 billion; income before income taxes, JPY755 billion; equity and income of affiliates, JPY140 billion; net income attributable to Honda Motor, JPY580 billion.

Earnings per share is expected to be JPY321.81.

The ForEx assumption for the fourth quarter is JPY100 to $1, and JPY135 to EUR1.

The ForEx assumption average for the fiscal year is JPY100 to $1, and JPY134 to EUR1.

Please turn to slide 9 for information on the dividend.

As previously announced, the third quarter dividend is expected to be JPY20 per share of common stock; a JPY1 increase compared to the same period last year.

And the annual dividend for fiscal 2014 is expected to be JPY80 per share of common stock; a JPY4 increase per share compared to a year earlier.

Operating income analysis.

Next, we would like to explain the results of the fiscal third quarter.

Please turn to slide 10.

Net sales and other operating revenue totaled JPY3,020 billion; a 24.5% increase.

This was driven by a rise in motorcycle and automobile net sales, the positive impact of foreign exchange fluctuations, as well as other factors.

Excluding the JPY424.8 billion positive impact of ForEx fluctuations, details concerning Honda's revenue by business segment for the third quarter are as shown.

Please turn to slide 11.

Cumulative net sales and other operating revenue for the first to third fiscal quarters are summarized here for your reference.

Please refer to slide 12.

Next, we would like to explain the positive and negative factors which impacted income before income taxes for the quarter.

Income before income taxes for the fiscal third quarter was JPY216.6 billion; an increase of JPY126.8 billion compared to the same period last year.

Operating income amounted to JPY228.5 billion; an increase of JPY96.6 billion.

Now, I would like to elaborate on the increase and decrease factors.

With respect to volume and model mix, an increase in unit sales volume led to a positive impact of JPY25.9 billion.

Regarding cost reduction effects, cost reductions of JPY23.1 billion were realized, despite an increase in depreciation costs, in addition to other factors.

With regard to SG&A expenses, an increase in both sales-related expenses and general administrative expenses resulted in a negative impact of JPY26.3 billion.

An increase in R&D expenses had a negative impact of JPY9.2 billion.

The positive impact of currency effects at the operating income level was JPY83.1 billion.

In the area of other income and expenses, fair valuations related to derivative instruments resulted in a positive impact of JPY40.1 billion, while the difference between average sales rates and transaction rates, in addition to other factors, resulted in a negative JPY9.9 billion impact.

Please turn to slide 13.

At this time, we would like to explain the positive and negative factors which impacted income before income taxes for the nine-month fiscal period.

Higher SG&A costs and R&D expenses, among other factors, had a negative impact on income.

But this was more than offset by the positive impact of currency fluctuations, resulting in a total of JPY554.2 billion; an increase of JPY163.4 billion compared to the same period a year earlier.

Details are as shown.

Business segments.

Please turn to slide 14.

Next, we would like to discuss the third quarter results for each business segment.

In motorcycle business operations, Honda Group unit sales increased, due to the positive effect of new model introductions in India and Indonesia and other factors, despite a decline in sales in Brazil and other countries in the other regions category, resulting in total Group unit sales of 4.251 million units; an 11.4% rise.

Please turn to slide 15.

Due to higher motorcycle unit sales and the positive impact of ForEx translation effects, net sales increased to JPY400 billion; an increase of 30%.

Operating income increased to JPY34.5 billion; an increase of 51.4%, primarily due to higher income related to an improvement in sales volume and model mix, as well as the positive impact of ForEx fluctuations, which more than offset the negative effect of increased SG&A costs; and other factors.

The operating margin for the quarter was 8.6%.

Please turn to slide 16.

Next, we would like to discuss automobile business operations.

With respect to Honda Automobile Group unit sales, the positive impact of new model introductions, as well as fully remodeled vehicles in Japan, China, and North America, more than offset the negative impact of a decline in sales in Thailand, resulting in a total of 1.082 million units; an increase of 9.7%.

Please turn to slide 17 for financial highlights on this business segment for the quarter.

Net sales rose to JPY2,377 billion; an increase of 23.9%, primarily due to higher unit sales and the positive impact of ForEx fluctuations on net sales.

With respect to operating income, the negative impact of higher SG&A costs and other factors was more than offset by an increase in income associated with an improvement in sales volume and model mix, and cost down effects, as well as the positive effect from ForEx fluctuations, resulting in a total of JPY154.2 billion; a 117.5% increase compared to the same period of the previous year.

The operating margin was 6.5%.

Please turn to slide 18.

Next, we would like to review the operations of power products and other businesses for the third quarter.

Honda Group unit sales rose, due to robust OEM engine sales in North America.

But this was more than offset by lower pump sales in the Middle and Near East, resulting in a total of 1.162 million units; a decrease of 2.8%.

Please turn to slide 19.

In the power products and other businesses segment, the positive impact of ForEx fluctuations and other factors on net sales resulted in a total of JPY78.6 billion; an increase of 10.2%.

The operating loss was JPY2.8 billion as an increase in SG&A costs and the negative impact of a decrease in sales volume and model mix more than offset the positive impact of currency fluctuations.

The operating margin was negative 3.7%.

Please turn to slide 20.

In the financial services business segment, the total assets of finance subsidiaries at the end of the third quarter totaled JPY8,082 billion.

Net sales totaled JPY177.6 billion; an increase of 28.6%.

Operating income was JPY42.7 billion, an increase of 12%, due to positive currency effects and other factors.

The operating margin was 27%.

Please turn to slide 21.

A summary of the results for the first three fiscal quarters by business segment is as shown.

Geographical regions.

Please turn to slide 22.

Next, we would like to review Honda's business results by geographical region for the third quarter.

In Japan, operating income for the quarter was JPY59.3 billion; an increase of 45.7%, primarily due to the positive impact on income from an improvement in sales volume and model mix, as well as positive ForEx effects, despite an increase in SG&A and R&D expenses.

In North America, operating income was JPY131.1 billion; an increase of 85%, primarily due to cost down effects, as well as positive currency effects, despite an increase in SG&A costs.

We would like to take a moment to specifically discuss the business environment in the US automobile market.

During the October through December quarter, industry sales showed mixed signals.

Sales volume remained strong, but industry average incentives rose.

Total sales in the US market for the calendar year were 15.6 million units; an increase of 7.6% compared to 2012.

Due to the strength of economic indicators, we expect that sales growth will continue in 2014, and our market assumption is for just under 16.0 million units.

Regarding Honda's sales during the quarter, core models continued to sell very well, and the Civic, Accord, CRV and Odyssey were all number one sellers in their respective segments in December.

The Acura RDX continued its strong sales momentum, setting its 20th consecutive monthly sales record in December.

The fully remodeled MDX also achieved historical high monthly sales in the month, as well.

The Honda and Acura brands achieved combined sales of 1.52 million units in 2013.

The CRV surpassed the 300,000 unit annual sales milestone for the first time, and combined sales of the Civic, Accord and CRV totaled more than 1 million units.

Acura growth was driven by its SUV models; the RDX and the MDX.

RDX sales increased by 51.6% compared to 2012.

And MDX sales were up 4.3% following the launch of a fully remodeled version in the latter half of the year.

In 2014, we are planning to further expand sales as the FIT will undergo a full model change, and Acura will introduce the TLX sedan model.

The FIT is expected to make a big impact on the sub-compact segment with its fun to drive performance, class-leading fuel efficiency, utility, and safety.

Production of the new FIT will start in February 2014 in Mexico, and it will be launched in the spring this year.

The accurate prototype, unveiled at the Detroit Motor Show, is expected to be a key model in the Acura line up and will offer two all-new, highly efficient sporty powertrains.

We will produce the Acura TLX in Ohio, and start deliveries in the middle of this year.

In Europe, operating losses amount to JPY8.7 billion; a deterioration of JPY5.1 billion.

This was primarily due to the negative impact on income from lower sales volume and model mix, despite a reduction of SG&A expenses and positive ForEx effects.

In Asia, operating income was JPY50 billion; an increase of 23.4% compared to the same period last year, primarily due to the positive impact on income from an improvement in sales volume and model mix, as well as positive ForEx effects, despite an increase in SG&A costs.

Operating income for the other regions category, which includes South America, the Near and Middle East, Africa and Oceania was JPY7.9 billion; an increase of 197.2%, mainly due to the positive impact on income from an improvement in sales volume and model mix.

Please turn to slide 23.

A summary of the results for the fiscal first nine months by geographic segment is as shown.

Please turn to slide 24, equity in income of affiliates.

Equity in income of affiliates amounted to JPY31.6 billion, mainly due to an increase in unit sales in Asia and the positive impact of ForEx effects, in addition to other factors.

Equity in income of affiliates in Asia totaled JPY28.0 billion.

Please refer to slide 25, capital expenditures.

Consolidated capital expenditures for the fiscal first nine months amounted to JPY450.4 billion; an increase of JPY60.6 billion, mainly due to an increase in investment for plant and equipment within automobile business operations, as well as the impact of foreign currency fluctuations.

For your reference, increases and decreases in capital expenditures by business segment, excluding the impact of currency translation effects, are shown on slide 26.

Please turn to slide 27, Group unit sales forecast.

We would now like to review the revised unit sales forecasts for the fiscal year for each business operation.

The Honda motorcycle Group unit sales forecast is as follows.

Reflecting a slowdown in the motorcycle market in Vietnam and Brazil, as well as an expansion of sales in Indonesia, the sales forecast for motorcycle operations is 17.095 million units; a decline of 225,000 units from our previous forecast.

The Group forecast for automobile operations is 4.385 million units; a decrease of 45,000 units compared to our previous forecast.

The Group forecast for power product operations is 6.050 million units, reflecting a 50,000 unit decrease (sic - see slide 27, "50,000 unit increase") from our previous forecast.

Please turn to slide 28.

The Honda consolidated unit sales forecast by business segment has been revised as follows.

Motorcycle operations, 10.41 million units; automobile operations, 3.62 million units; power product operations, 6.05 million units.

Please turn to slide 29.

We would now like to, once again, highlight the updated fiscal 2014 consolidated financial forecast.

Operating income, JPY780 billion; income before income taxes, JPY755 billion; net income attributable to Honda Motor, JPY580 billion.

The increase and decrease factors behind the changes from the previous fiscal year are shown in the profit walk simulation on slide 30.

Changes in sales volume and model mix other, plus JPY102.6 billion; costs down other, plus JPY20 billion; SG&A increase, minus JPY118 billion; R&D increase, minus JPY47.5 billion; ForEx effects, plus JPY278 billion; other income and expenses, plus JPY30.9 billion.

Please turn to slide 31.

The positive impact of foreign currency fluctuations, as well as the negative impact of difficult market conditions in the motorcycle and automobile sectors in emerging countries mentioned earlier in this presentation, is reflected below in our comparison with the previously announced fiscal year forecast.

Sales volume and model mix other, minus JPY41 billion; SG&A decrease, plus JPY11 billion; ForEx effects, plus JPY30 billion; other income and expenses, minus JPY10 billion.

Please note that we do not expect changes in cost down effects, or R&D expenses.

Finally, we would like to highlight our forecast for capital expenditures, depreciation costs, and R&D expenses.

The forecast for capital expenditures is JPY710 billion; a JPY10 billion increase, due to ForEx effects and other factors.

The forecast for depreciation and amortization is JPY375 billion; an increase of JPY5 billion compared to the previous forecast, due to the impact of ForEx effects, as well as other factors.

The forecast for R&D expenses is JPY630 billion.

This concludes our financial results presentation.

We hope that you've found this audio explanation helpful, and would like to thank you for your continued interest in Honda's activities.

Statements in English on this transcript were spoken by an interpreter present on the live call.

The interpreter was provided by the Company sponsoring this Event.